Productivity spillovers from foreign direct investment in Chinese industries

Abstract

This paper investigates productivity spillover effects of FDI and relates it to the capital- or labour-intensive nature of the industry. Using a panel data set of 35 industries in China, it shows that the presence and magnitude of FDI spillover effects vary by different channels and the nature of the industry. On average, FDI has no horizontal spillover effects but has positive backward linkage effects. However, there are substantial differences in FDI spillover effects via demonstration, competition and labour mobility between capital- and labour-intensive industries. The findings have important policy implications.

Keywords:

• FDI
• horizontal and vertical linkages
• capital- and labour-intensive industries

JEL Classifications:

• F21
• F23
• O14
• O30

Notes

Notes

1. Recently, there have been studies using the knowledge production function approach with innovation as the dependent variable rather than productivity (Liu and Buck 2007). Data availability prevents us from adopting this approach.

2. The aggregation scheme is not reported but available upon request.